MCGEO Responds to Pagnucco on Montgomery’s Liquor Control Regime

Mr. Pagnucco opens his blog by stating that, “Few issues in county government have received more attention over the past two years than the operations of its Department of Liquor Control (DLC).” What a distraction! There are a lot of issues in Montgomery County’s Government that have received attention over the past two years, only one of which, the privatization of the DLC, seems to be receiving a lot of attention from the privileged elite in the County. Most of the County’s residents see far more pressing issues – the funding of the Purple Line, improving other parts of the County’s transportation infrastructure, increasing affordability of housing, and generally serving the needs of our county’s less-than-privileged with better wages, better economic opportunities and better public services. But since Mr. Pagnucco seems to think that we need to privatize DLC and claims that there are a bunch of “myths” surrounding DLC privatization, and he is using a one-sided platform to promote privatization rather than attend the Ad Hoc committees numerous public hearings and meetings, we’ll bite.

In his first false claim, Mr. Pagnucco claims that DLC’s operations increase costs for the consumer. Across all categories except special order beer, costs are 2-10 percent cheaper than neighboring jurisdictions. Many of the smaller retailers are against privatization primarily for the reason that DLC levels the playing field and keeps costs even.

Myth 1: Mr. Pagnucco claims that the County does not need DLC’s net income to function.

Actually, it does. Montgomery County, MD will owe $165,534,675 from 2015-2034 in debt service of revenue bonds that are currently paid through the revenues generated by the Montgomery County DLC. Additionally, the OLO report states that DLC has generated an average of $25.7 mill per year over past decade. That figure is nearly the entire Recreation Department or Library budget. Not chump change. The OLO report acknowledges potential lost revenue that will need to be made up through various fees, auctioning of licenses or a dedicated sales tax. However, the OLO report factors in no additional costs that would occur under a transition from county control to private enterprise. There would be leases to be paid, buyouts for early retirement, increased costs for enforcement and public health issues, etc.

While it’s easy to agree that the County will find a way to adjust, why should it? It has a guaranteed source of revenue that you propose the County throw away to make it easier for consumers to buy when there’s also no guarantee that consumption would increase. In Washington State, after privatization, sales only increased by 6% in its first year, while the next year data shows no increase. In addition, with increased prices, many consumers near the Oregon border are visiting liquor stores there to bypass the price increases. If privatization here were to follow the trends in Washington State, we’d definitely lose revenue to our neighboring jurisdictions.

Pennsylvania’s public liquor stores, which just beat back efforts to privatize, have reported a record boost in sales that are said to be due to improvements and modernization. A liquor board member said that people living in a border area are returning to shop in Pennsylvania stores because of the improvements.

A better solution is to keep the current public model in place with its fair prices and guaranteed revenue while expanding DLC stores. The resolution passed by the Council last week allows for this solution.

An official with an ALEC-connected think tank in Washington notes that this claim doesn’t really hold water. “Privatization didn’t improve the numbers necessarily but it didn’t make it any worse either.” A Washington state police spokesman adds, “I don’t think you can draw a correlation that because of private sales now we have fewer alcohol related arrests. The number of arrests is much more directly connected to the number of police officers out there actually patrolling.” The state police official notes that there are 80 fewer state troopers than previously, which has led to the decline in arrests. Couple that with legalization of marijuana in that same time period, one can draw the conclusion that arrests could have just as easily declined due to substitution of one drug of choice for another.

Tori Cooke, president of the Montgomery County FOP, testified that privatization would create public health and safety issues that are not easily addressed. And he and his fellow officers are against any efforts to privatize.

Dr. Roland Zullo, a research scientist at the University of Michigan, examined the impact of state ownership of retail alcohol distribution on 23 different crimes grouped in six categories. Dr. Zullo finds that state control of retail alcohol distribution is associated with statistically significant reductions in crimes that have been linked to alcohol consumption, including domestic abuse, assault, and fraud. Control states also had lower rates for vehicle theft and vandalism (using a slightly lower threshold for statistical significance, the 10% rather than the 5% level).

In Myth 3, Mr. Pagnucco claims that privatization would not result in the loss of high paying union jobs.

This is his most egregious of claims, especially for a former union employee. Where’s the evidence that “many private wholesalers” are represented by IBT? Or even evidence that union membership will not suffer a net loss? Mr. Pagnucco needs to explain himself on this one. I don’t know how he sees that transition occurring.

These are our members; it’s our job to protect them and to protect unions in general. It’s a public policy issue. There are societal costs. How much is it going to cost to put these people on the streets? Where are the high paying jobs that are family supporting and middle class sustaining going to come from for these 400 employees? I doubt we’ll see them at the mom and pop shops that could pop up if privatization were to occur. It’s extremely difficult to organize a union in your workplace these days. Although the NLRB is trying to speed up the process, the length of time from a certification election to a first contract can still take years. Union busters find many successful ways to stop a union campaign, as Mr. Pagnucco well knows.

DLC is able to provide good jobs with benefits while generating tens of millions to county coffers. Meanwhile, privatization will create minimum wage liquor clerk, warehouse and delivery jobs with little-to-no benefits that will exacerbate our economic inequality in this county. Sure, privatization could create union organizing opportunities, but no way it would create net gains in union membership.

In Myth 4, Mr. Pagnucco claims that the DLC is not getting better.

First and foremost, the fraud, waste and abuse in the private liquor industry is as rampant as it is in the public sector, if not more. But, because it’s private industry, it isn’t enforced or prosecuted very often or as publicly. In 2006, eight wholesalers in New York were ordered to pay $1.6 million in fines and costs for a “pay to play” scheme that favored larger retailers and provided discounts and inducements to those willing to pay. Meanwhile, smaller licensees were forced to cope. Under DLC’s structure, small licensees are given the same treatment as larger purchasers. With oversight, the DLC is forced to answer for its practices and it does. Private industry will not be given the same oversight.

Secondly, the DLC was hamstrung by technology purchases that were inappropriate for its needs and a hiring freeze, forcing customer service to suffer. Both of these were county mandates, not DLC-specific. It’s now been given the go ahead to hire and has made significant strides on that front. The ordering system is getting its revamp as well.

Yes, we agree that the system needs to be more nimble – it shouldn’t be forced to follow county-imposed hiring freezes and should be allowed to buy technology that specifically fits its needs, especially since it is a self-funded department.

In Myth 5, Mr. Pagnucco claims that the resolution to allow private wholesalers to fulfill sales of special order items is not “historic reform.”

We agree, it’s not “historic.” That’s hyperbole used for political purposes but it is a significant change for the department. Part of the change should make the DLC more nimble and part of the change should allow for expansion of the DLC’s store base. The “fee” Mr. Pagnucco complains about is paid by the distributor to allow for its participation in the Montgomery County market. Its structure has not yet been determined, just that there will be a fee.

Comparing the County DLC to the USSR’s failed perestroika? Really? I hope all readers realized that this is an absolutely absurd comparison. This resolution came after months of hearings, testimony and input from stakeholders. If you don’t like the way the process was playing out, Mr. Pagnucco, why didn’t you participate in it? Why are you using your friend’s blog to post your opinion without allowing for public input or participating in the public forum?

Again, I will emphasize there are much larger issues facing Montgomery County residents than from whom they can buy their liquor or wine. You need to respect the process and move on from this DLC issue and tackle our real problems.